Avtex Airservices P/L v Bartsch, R.I.C.
[1992] FCA 883
•30 Nov 1992
JUDGMENT No. ..xg~..,/ . 5.&*
| IN THE FEDERAL COURT OF AUSTRALIA | ) |
J ) LIMITED DISTRIBUTION
| NEW SOUTH WALES DISTRICT REGISTRY | ) | |
| ||
| GENERAL DIVISION | ) |
BETWEEN: AVTEX AIRSERVICES PTY LIMITED First Applicant
INTERNATIONAL PILOT TRAINING
COURSE PTY LIMITED
Second Applicant
DIETER SIEWERT
Third Applicant
PAUL LANGE
Fourth Applicant
RONALD IAN CHARLES BARTSCH
First Respondent
DAVID LEE
Second Respondent
ANTHONY HUGH WEBSTER
Third Respondent
PETER JAMES PUNCH
Fourth Respondent
AVIATION DYNAMICS PTY LIMITED
Fifth Respondent
AXIS AVIATION PTY LIMITED
Sixth Respondent
CALDTEAR PTY LIMITED
Seventh Respondent
| Note : | Settlement and entry of orders is dealt wlth in |
|
CORAM: HILL J PLACE: SYDNEY DATED: 30 NOVEMBER 1992
MINUTES OF ORDER
THE COURT ORDERS THAT:
1. The applicant to prepare short minutes of order to give effect to thls judgment and to hand them into the Court when this matter is next mentioned, upon a date to be agreed.
2. Costs be reserved.
IN THE FEDERAL COURT OF AUSTRALIA )
) LIMITED DISTRIBUTION
| NEW SOUTH WALES DISTRICT REGISTRY | ) |
| GENERAL DIVISION |
BETWEEN: AVTEX AIRSERVICES PTY LIMITED First Appllcant
INTERNATIONAL PILOT TRAINING
COURSE PTY LIMITED
Second Appllcant
DIETER SIEWERT
Third Applicant
PAUL LANGE
Fourth Applicant
W : RONALD IAN CHARLES BARTSCH First Respondent
DAVID LEE
Second Respondent
ANTHONY HUGH WEBSTER
Thlrd Respondent
PETER JAMES PUNCH
Fourth Respondent
AVIATION DYNAMICS PTY LIMITED
Fifth Respondent
AXIS AVIATION PTY LIMITED
Sixth Respondent
CALDTEAR PTY LIMITED
Seventh Respondent
| CORAM: HILL J PLACE: SYDNEY DATED: 30 NOVEMBER 1992 | REASONS FOR JUDGMENT |
On 4 May last I gave judgment in this matter on the question of the liability of the respondents to the applicants, the parties having reserved the question of the quantum of damages or an accounting for profits for further evldence and argument on a later occasion.
I held:
(1) Aviation Dynamlcs Pty Limited was liable to pay damages for breach of contract to Avtex Airservices Pty Llmited in relation to the licensing by Aviation Dynamlcs Pty Limited of the ACE System to Axis Aviation Pty Limited at Bankstown, from January
1991.
(2) Mr Bartsch, Mr Lee and Aviation Dynamics Pty Limited were each liable to account to Avtex Airservices Pty Limited for the benefits gained or recelved in breach of fiduciary duty from the operation by the respondents of the business known as Airline Pilot Training Course ( "APTC" ) , from January 1989. At the same time I directed, and the contrary was not argued at the time the orders were formulated, that the account be subject to an allowance for proper and reasonable expenses incurred by each of Mr Bartsch, Mr Lee and Aviation Dynamics Pty Limited.
(3) The sixth respondent was liable to International Pilot Training Course Pty Limited for damages for breach of copyright in reproducing a video film entitled "International Pilot Trainlng Course" made by Fitzair Pty Limited in or about November 1989.
I accordingly ordered that there be an inquiry into the amounts payable by Mr Bartsch, Mr Lee, Aviatlon Dynamics Pty Llmited and Axis Aviation Pty Limited and made
| consequential orders, including declaratory and injunctive | relief. |
| Thereafter counsel for the applicants sought to have the orders made varied to the effect that Avtex Airservices Pty Limited ("Avtex") was entitled either to equitable damages or an accounting for profit at its election against Mr Bartsch, Mr Lee and Aviation Dynamics Pty Limited and that it was entltled to make that election at any time prior to the | |
| conclusion of the damages hearing. I held in a separate judgment that Avtex had exercised its electlon by the way in which the case was run before me originally and by seeking by way of relief only an accounting for profits and at no time putting forward a case in the alternative for equitable damages. Thus, no election was available to it. |
There remained, then, for me to decide effectively
three questions:
(1) The damages suffered, if any, by Avtex Airservices Pty Limited as a result of the breach of contract of the Fifth Respondent in granting a licence to Axis Aviation Pty Limited for the use of the ACE programme at Bankstown.
(2) The damages, if any, payable by Axis Aviation Pty
Limited for the breach of the copyright in the
training film.
(3) The quantum of profits derived by Mr Bartsch, Mr Lee and Aviation Dynamics Pty Limited after allowance of such proper and reasonable expenses incurred by them in gaining those benefits as was just.
Of these three matters, the last was the most substantial and most of the evidence and submissions were directed to it.
At the outset the respondents produced a llst of calculations. Some of these calculations were subsequently amended and the final calculations as prepared by the respondents were as follows:
(Those items marked with an asterisk were ultimately the subject of agreement between the parties.)
"Respondents' Calculations
Student fees received
Interest on monies at Bank
Refund from Cooper and Son
Reimbursement of advertising
Reimbursement of fees
Total credits to APTC
Payments to flying schools
Student flying kits cost Amount paid to Avtex to clear credit
In APTC (transfer on 8/3/90)
Student refunds
Wages paid to Susan Lee in period1/9/89 to 23/2/90
Tax paid on wages of Susan Lee for thesaid period
Work provlded by Susan Lee at the request
of David Lee for APTC chargeable at samerates as wages in items 5 and 6 above (being
6 months gross wages of $16,153.80 divided
by 26 to obtaln weekly wage, divided by 4
hours per week to yield hourly rate of pay
$15.53, multiplied by total hours on a/c
of APTC in perlod February to September 1989
i.e. 150 hours) 2,329.50 Printing costs 1,500.00*
| 9. Stationery and postage costs | 600.00* |
| 10. Bank charges paid on a/c APTC | 991.00* |
| 11. Advertising fees and expenses paid on a/c |
APTC 13,742.41*
| 12. | Telephone expenses pald on a/c APTC | 350.00* |
| 13. | Rent paid for Paddington office premises | |
| from August 1989 to March 1990 portion |
attributable to APTC 6,866.24
| 14. | Time and effort provided by David Lee to APTC - calculated at $24.00 per hour for 1128.5 hours | 27,084.00 |
| 15. | Time and effort provided by Ron Bartsch to | |
| APTC calculated at consultancy rate charged | ||
| by ACS to First Applicant ($2,500.00 per | ||
| month for 2 days per week or 16 hours per | ||
| week viz $30,000.00 p.a. for 400 hours p.a.), tlme spent on APTC during 1989 - 924 hours at Bankstown including travel and allowlng for | ||
| other additional work on APTC described in |
Affidavit of 23/7/92 69,300.00
792,113.10
Nett benefit received by Fifth Respondent:
I t will be observed that following the agreement the
partles had reduced the controversy between them, as to the
quantum of profit, to a relatively short compass, namely:
(1) The proper amount to be allowed to Mr Bartsch for his time in securing the benefits flowing from the APTC. This involved a determination of the time spent by Mr Bartsch on APTC matters and the appropriate hourly rate to be applied.
( 2 ) The proper allowance to be made for the time and
effort expended by Mr Lee to produce the benefits
from APTC. This, likewise, raised for declslon the time spent by Mr Lee on APTC matters and the determination of an appropriate rate per hour for time expended by him.
(3) The amount of salary paid to Mrs Lee, and tax thereon, if any, as related to servlces performed by her for APTC as against services she performed on other matters. Thls raised as an issue the time spent by Mrs Lee on APTC matters and the determination of an appropriate rate per hour to be adopted.
(4) The quantum of rent paid for the Paddington office premises as related to APTC. This involved making an apportionment of the rent paid among the various activities carried on at Paddington.
| Before addressing the evidence that was adduced on these matters, it is convenient at this stage to address a matter of principle argued before me. In the written submissions prepared by the applicant, it was submitted that I ought not to make any allowance at all for the labour expended by elther Mr Bartsch or Mr Lee, having regard to the finding that I am said to have made that they were guilty of fraud. Reference was made in particular to what was said by Lord Denning MR in Phip~s v Boardman [l9651 Ch 992 at 1020-1 and by Fox LJ in O'Sullivan v Management Aaency in Music Ltd [l9851 3 ALL ER 351 at 371-3. |
The passages cited make it clear that an accounting for profit should not be allowed to extend further than justice demands. In the ordinary case, equity in conscience would permit an allowance to be made for the work done by the fiduciary in making the profit. The cases recognise, however, that a situation could arise where there was such dishonesty or bad faith on the part of the fiduciary that he or she might not be allowed any remuneration or reward at all.
The orders I made, in respect of the accounting for profit, were made after extensive argument in the course of which the applicants were represented by senior counsel. The applicants did not demur, at the time, to an allowance being made for the value of services performed by Mr Bartsch, Mr Lee and Aviation Dynamics Pty Limited. In these circumstances, I
| do not propose to alter the orders already made, in respect of | which I have already granted leave to appeal and in respect of | |
| which an appeal has been instituted. I should, however, say that in any event, the present case is not so extreme as to warrant the Court, in applying principles of equity, denying an allowance for those services. The real issue in the present case is the quantification of such an allowance. | ||
| Allowance for work erf formed bv Mr Bartsch | ||
| Mr Bartsch deposed that, during 1989 he had attended Bankstown Airport on no less than 116 days, with an average attendance there of 5-6 hours (a total of 696 hours). In addition, the return travel time to Bankstown involved a further 232 hours. He said that he had attended and was guest speaker at APTC career nights during 1989/90 involving him in | ||
| 6 nights, as well as other time spent on the APTC buslness for | ||
| which no specific time was allocated. In all he estimated that on average he worked in the period January 1989 to March | ||
| 1990 over fifty hours a week, including the time spent by him | ||
| on the consultancy agreement with the applicants. | ||
| Mr Bartsch produced a diary, recording, lnter alia, time spent by him at Bankstown. From this material counsel for Mr Bartsch submitted that the evidence justified a flndlng that Mr Bartsch had, during 1989, spent at least 696 hours at | ||
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| hours. It was then submitted that the appropriate rate to be applied in remunerating Mr Bartsch was the rate which Avtex had agreed to pay Mr Bartsch in the consultancy agreement entered into between Avtex and ACS. That consultancy agreement provided that Mr Bartsch was to be pald at the rate of $2,500 per month for 2 days per week. Extrapolated, that amounts to $75 per hour. | ||
| This consultancy agreement has a particular relevance to the case put for Mr Bartsch because it is relied upon to establish that 2 days per week (16 hours in total), prlncipally working at home, were spent by Mr Bartsch on matters affecting the academy and that accordingly all the time shown in Mr Bartsch's diary as involving attendances at Bankstown could be attributed to the APTC business. Thls approach is fallacious. First, the consultancy agreement did not confine Mr Bartsch to worklng two days only. The agreement between the parties was that, irrespective of the tlme he spent on the academy business, he should be paid a particular amount, that amount being calculated on the basis that no more than two days a week would be required. Secondly, it is difficult to distinguish the time spent by Mr Bartsch on APTC work and the time spent by him on academy work, for the simple reason that the two are interrelated. For example, the presence of Mr Bartsch at open nights was clearly related both to the APTC course and the academy, for | ||
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| entltled to believe that Mr Bartsch was attending those open days in his capacity as consultant to the academy. | ||
| In his written submissions, counsel for the applicants put that the inevitable blurring of the boundaries of the academy and the APTC business was an essential and integral part of the deceit that was practised by Mr Bartsch. | ||
| Thls is indeed so. It follows, so it was submitted, that any allowance to be made for the labour of Mr Bartsch ought to be limited to those factors which can clearly be identified as relating to APTC and have no relation to the activities of the academy. Clearly, to the extent that Mr Bartsch's activities relate to the IPTC proposal or the ACE system, they were for his own beneflt. | ||
| On any analysis, the claim made by Mr Bartsch is inflated. Counsel for the applicants submitted that an analysis of the diary revealed that Mr Bartsch had spent: |
(a) 3 6 days flying:
(1) 24 days as charter pilot, (li) 9 days as instructor, and (iii) 3 days filming the IPTC video. (b) 54 days at university.
(c) 3 1 days on vacation.
(d) 9 6 days at his Paddington home or office.
(e) 48 Sundays (his evidence being that he worked a six day week).
On thls basis, it was then submitted that no time remained for him to be additionally remunerated, since he was paid by the applicants for two days a week, ie 104 days.
This submission is, with respect, somewhat facile as
it assumes that Mr Bartsch in fact spent two full days
exclusively for academy work, when no doubt this was spread over the week. It assumes too that the entire time of Mr Bartsch at Paddington was spent on matters unrelated to the APTC business, whereas on the balance of probablllty this is not so.
On the evidence it is difficult lndeed to arrlve at a figure which I can be satisfied reflects accurately the time spent by Mr Bartsch on generating a profit in respect of the APTC business. Doing the best I can I would allow to Mr Bartsch a reasonable remuneration for 300 hours. I have arrived at this figure by commencing with the figure of 696 hours which Mr Bartsch claims to have spent at Bankstown. I exclude from the calculation travelling tlme, as this can not specifically be said to be time spent by Mr Bartsch on APTC busmess. I have deducted 288 hours, being time which appears to have been spent by Mr Bartsch as a pilot, leaving 408 hours. Clearly some of this time was spent on academy
| business and some on APTC business. I have arbitrarily | apportioned the time as approximately two-thirds attributable | |
| to APTC business and one-third to other business including academy business. | ||
| In my view, the submission that Mr Bartsch should be paid for his services at the rate of $75 an hour should not be accepted. Even if the applicants could be taken as having accepted a rate of that amount as appropriate for the academy busmess, the allowance of such a rate would permit Mr Bartsch to make a significant profit out of his breach of duty. | ||
| According to his evidence, Mr Bartsch had earned approximately $38,000 a year as a full-time employee with TAFE and for various consultancy jobs was paid in various ways, eg a percentage fee or an hourly fee depending upon the type of job. His TAFE salary works out to be around $22 an hour on the basis of a 3 5 hour week, 5 2 weeks in the year. It seems to me that Mr Bartsch would be appropriately remunerated for his time if an allowance were made for 300 hours at $22 per hour, a total of $6,600. | ||
| Allowance for work b er formed bv Mr Lee | ||
| The claim finally made for the tlme expended by Mr Lee was 8 7 0 hours. It was submitted that he should be remunerated on the basis of $24 per hour, that being said to | ||
| ||
| The figure of 870 hours was derived from various paragraphs of an affidavit sworn by Mr Lee. In summary, the items involved were: |
(a) Organising the APTC open night: 56 hours.
Preparing documents and forms for use by
the APTC: 68 hours
Preparing an agreement between Mr Bartsch,
Mr Lee, Avtex and Dawnvisa and documents
concerning the account status of students:
20 hours
visits to various flying schools: 24 hours
Time spent on documentation re accounting
system: 50 hours.
Meetings with Skygear International: 10
hours
Preparation of advertising: 80 hours (plus
or minus a third).
Processing flying school dockets: 95
hours.
Entry of student details in records: 60
hours
Recording payment of fees in computer
records: 25 hours Maintaining record of student enrolment
information: 25 hours
Processing refund applications: 20 hours
Coordinating student progress reviews: 20
hours
Coordinating delivery and return of
indemnity documents: 10 hours(0) Following up late payment of fees: 25
hours
(p)
Time spent in connection with Avtex Board meetings: 5 0 hours
(q) Discussions with administration manager:
25 hours (r) Attendance at student barbeques: 8 hours
(S) Administration meetings and general
correspondence: 185 hours
(t) Travel time for meetings: 40 hours
I am satisfied that the claim made contains considerable duplication. Having regard to Mr Lee's oral evidence, I am satisfied that the time taken in computer records is not likely to have exceeded 95 hours, an estimate which Mr Lee in the witness box accepted. This accounts for items (c), (h), (i), (j), (1) and (m). In my view, items (a), (p), (r), (S) and (t) are not directly related to the carrying
| on of the APTC course. Most were concerned with the academy | or the relationship between the applicants and the | |||||||||||||
| respondents. | ||||||||||||||
| I would allow a total of 335 hours made up of: 188 hours for items (b), (e) and (g); 12 hours for (d) - the evidence shows a dispute as to whether Mr Lee attended on some occasions and the deduction in this amount is to take this into account; the time taken in computer recording as admitted, 95 hours; and an additional 40 hours for items not otherwise specifically allowed or disallowed. I accept that the appropriate rate per hour should be $24. Thls totals $8,040. | ||||||||||||||
| The allowance for Mrs Lee | ||||||||||||||
| Mr Lee gave evidence on behalf of his wlfe by agreement of the parties. The claim for remuneration for the services performed by her included time spent in banking, collating accounts and assisting her husband to enter amounts into the computer. In the period to September 1989, she worked only part-time; in the period thereafter she was employed full-time. The claim for the period in which she was working part-time is for 150 hours at $15.53. She had been a legal secretary and had, so her husband said, no real bookkeeping experience. On that basis the rate of $15.53 for bookkeeping appears somewhat high. In the period 1 September | ||||||||||||||
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| of this amount should be made, if that salary bore no relationship to the time spent by her on APTC buslness or the value of the work she actually was performing. | ||||||||||||||
| Having regard to admissions made by her husband during evidence as to the amount of tlme spent by Mrs Lee in attending to the affairs of the APTC business, I would find that account should be taken of the time she had spent in the business to the extent of 155 hours. It seems to me that an appropriate level of remuneration would be $12.00 per hour, thus totalling $1,860. | ||||||||||||||
| Rent of the Paddinaton premlses | ||||||||||||||
| I am satisfied, contrary to the submissions of the applicants, that rent in the sum of $13,732.48 was in fact incurred for the Paddington premises. On the evidence, the amount paid for rent appears to have been calculated as being the amount necessary to meet interest commitments on the mortgage to purchase the property from Mr Bartsch. Mr Lee's evidence suggests to me that he believed this to be a commercial rental. His belle£ was not necessarily correct but the matter was not made the sublect of evidence before me. It may, however, be observed that it would be unusual for market rental to equal market interest on market value in real | ||||||||||||||
| estate. The fact that the property had been the former home | ||||||||||||||
| of Mr and Mrs Bartsch, whilst clearly explaining the selection | ||||||||||||||
| of the property for the purpose for which it was used, seems to me not to the point. | ||||||||||||||
| On these premises were conducted the businesses of APTC and the ACE business. The property consisted of two stories. The top floor was used by Mr Bartsch who did work for both The APTC and ACE businesses. The lower floor was shared by Mrs Bartsch and Mrs Lee. It is not true to say that the use of these premises was an essential part of the fraud perpetrated by Mr Bartsch. Equally, ~t is not true, on the evidence, that accommodation without cost could have been | ||||||||||||||
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| It is difficult, on the evidence, to separate out how much of the premises was used for the APTC business and how much for other purposes. It is clear, for example, that the top floor was not used half and half for APTC business and ACE business, even if it be assumed that the bottom floor was. No evidence was in fact given by Mrs Bartsch. Any apportionment of the rent will be arbitrary, but doing the best I can, I think that on the balance of probabilities, at least one-third of the rent could be said to be attributable to the APTC business. If rent had not been paid for this property it would have been necessary for alternative premises to be obta~ned. For this reason some allowance is | ||||||||||||||
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| would take Into account any excess of the rent paid over and above market rental. | ||||||||||||||
| I would, accordingly allow one-third of the rent, $4,577, lncurred as an item to be taken into account in the determination of the profit. | ||||||||||||||
| Damaaes for breach of contract | ||||||||||||||
| The applicants claim damages of $112,070. To say the least, the evidence adduced in relation to this claim is slight. | ||||||||||||||
| It is submitted that there is no evidence that the breach caused to the applicants any loss. Reference is made to the decision of the Court of Appeal in Alexander v Cambridae Credit Cor~oration (1987) 9 NSWLR 310 as supplying the appropriate test of causation. It was submitted for the respondents that it was impossible to conclude on the evidence that, as a matter of common sense and applying the "but for" test, had the breach not been committed the applicants would have earned additional income. It was said that, in the absence of any evidence, it could not be said that a flying theory course student who enrolled in the course offered by Axis Aviation Pty Ltd would have been attracted to the | ||||||||||||||
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| The evidence showed that there were other sources of flying theory instruction, including a course offered by TAFE. On the other hand, there was no theory course offered to members of the public in the Bankstown area other than that operated by Axis as a result of the breach of contract. | ||||||||||||||
| According to the evidence of Mr Siewert, which was not challenged, courses were conducted by Axis for 174 students durlng the period 4 March 1991 until 24 October 1991 (7.5 months). During that period Axis had at least 15 students taking flying lessons using aircraft belonging to it. | ||||||||||||||
| The affidavit of Mr Siewert also deposes, on the basls of mathematical calculations which he makes and assumptions whlch were neither the subject of evidence nor submission, that there would have been a profit from the ground component of $84,970. This amount is, with the exception of a deduction for the cost of workbooks, a gross proflt. The figure assumes that each workbook purchased by Axis represented a student in fact enrolled in its course. The figure is also based on Mr Siewert's evidence, which was not challenged, that had all these students enrolled in the Academy course, no further staff, equipment or facilities would have been required and no further expenses incurred. | ||||||||||||||
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| The remaining damages component claimed is the sum of $28,000. This figure represents an amount of $3,500 | ||||||||||||||
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| The sum of $3,500 represents, I would assume, the gross profits of the APTC buslness divided by the number of students who passed through the APTC course. Not all of this amount can probably be said to be referable to the breach of contract. In any event, the net profit should be taken into account, rather than the gross profit. I would, accordingly, allow as further damages an amount calculated by taking the net profit of the APTC business, calculated after taking into account the just allowances for the services of Mr Bartsch, Mr and Mrs Lee and rent, as well as the allowances agreed upon by the partles, divided by the number of students who actually passed through the APTC course and multiplied by 8. The ultimate mathematics can be the matter of calculation by the partles, or, failing agreement, further submission. | ||||||||||||||
| Damaaes for Breach of Co~vriaht | ||||||||||||||
| Axis took no part in the proceedings for assessment of damages. It was said that I should infer that the fact that Axis went to considerable trouble to have a further copy of the video made and translated in part into Korean meant that the video was useful and central to its enterprise. The submission was that the failure of Axis to call evidence entitled thls inference to be more comfortably drawn: The Insurance Commissioner v Jovce (1948) 77 CLR 39 at 49. | ||||||||||||||
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| Interest | ||||||||||||||
| It was submitted for the applicants that I should award compound interest in respect of the accounting for pro£ its. There is no doubt that on occasions compound interest might be awarded against a trustee: cf Southern Cross Commodities Ptv Ltd (In Lia) v (1987) 11 ACLR 818 at 839. However, there is no principle of law that this should invariably be the case and, in the present case, it seems to me to be appropriate that interest be ordered in accordance with the Federal Court Act 1976 on both the amounts ordered to be paid by way of an accounting of profits and by way of damages. | ||||||||||||||
| Accordingly, I order that the applicant prepare short minutes of order to give effect to this judgment and hand them into the Court when this matter is next mentioned, upon a date to be agreed. I reserve the question of costs | ||||||||||||||
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| I certify that this and the | ||||||||||||||
| preceding twenty-two (22) pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice Hill. | ||||||||||||||
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